Uh-oh. Looks like we hit peak oil last year, which means we can expect spiraling oil costs in the years to come unless a new source of oil pops up, or the economy never recovers to its previous highs.
Raymond James analysts, via Environmental Capital, say we’re on the wrong side of global oil supplies:
Raymond James’s notes that non-OPEC oil production apparently peaked in the first quarter of 2007, and given precipitous falls in oil output from Russia to Mexico, there’s not much hope for a recovery. OPEC production—and thus global output—peaked a little later, in the first quarter of 2008, Raymond James says.
The contention rests on a simple argument: OPEC oil production actually fell even as oil prices were above $100 a barrel, a sign of the “tyranny of geology” that limits the easy production of ever-more crude.
Below is a chart, via a paper (.pdf) from Boston College economist Eyal Dvir and Harvard economist, Kenneth Rogoff that shows three seperate oil price spikes in the past century and a half. In each case they found that there was industrial growth coupled with uncertainty about oil supplies.
For instance, in the runup to 1877, the U.S. was industrializing, but oil was uncertain. What changed? Standard Oil was able to move oil easier after 1878. In 1972, Texan oil supplies were just about finished and Asia was growing, but the Mideast gained access to its oil supply. They “were now owners (whole or part) of their reserves, and therefore had the direct ability to control the supply of oil to the market.” This eased the price of oil.
In our recent case, though, there doesn’t appear to be something that can ease demand pressures. OPEC is struggling to produce oil while the Chinese economy is exploding.
So, unless we can find a new source of oil, or produce new sources of energy, once the economy gets humming again, we can expect another oil price spike.
[Rogoff paper via Gregor]
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